The current ratio assesses a company's ability to cover short-term liabilities with short-term assets. It's calculated by dividing current assets by current liabilities. A ratio above 1 indicates liquidity, while significantly higher ratios may imply underutilized assets. Ratios below 1 signal liquidity challenges. Optimal ratios vary by industry, reflecting risk and operating cycles. Investors and creditors use it to evaluate a company's short-term solvency and stability.

The quick ratio, also known as the acid-test ratio, provides a more stringent assessment of a company's liquidity compared to the current ratio by excluding inventory, which may not be easily convertible to cash in the short term. By focusing solely on the most liquid assets such as cash, marketable securities, and accounts receivable, the quick ratio offers insight into a company's ability to meet its short-term obligations without relying on inventory sales. A higher quick ratio indicates a stronger liquidity position, suggesting that the company has sufficient resources to cover its immediate liabilities, enhancing its financial stability and ability to withstand unexpected financial challenges.

The liquidity ratio is a financial metric used to evaluate a company's ability to meet its short-term financial obligations without experiencing financial strain. It measures the proportion of a company's liquid assets, which can be quickly converted into cash, compared to its short-term liabilities. Typically, liquid assets include cash, marketable securities, and accounts receivable. The liquidity ratio provides insights into a company's liquidity risk, indicating whether it can cover its short-term debts using its readily available assets. A higher liquidity ratio suggests a stronger ability to meet short-term obligations, indicating financial stability and flexibility. Conversely, a lower ratio may signal potential difficulties in fulfilling short-term obligations, potentially leading to liquidity issues.